Iger Returns | Bloomberg Surveillance 11/21/2022
There's no doubt about it that inflation, inflation, inflation is the key to market direction. Eventually we're going to see a more significant pullback in risk assets and equities. Right now, it's a market that's trading on whether inflation is coming in better or worse relative to expectations. The Federal Reserve funds rate is going
to go above 5 percent up to 5 and a quarter. This narrative of now pivot to pause is one that is just not yet backed by the Fed. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. Good morning, everyone. Jonathan Ferro Lisa Abramowicz It's Tom
Keene holiday lengthen workweek. Good morning, everyone, on radio and television, a really eventful week coming up with lots of mystery, including really, really get to this Mr. Iger rejoining Disney and all the rest China we've got to talk about as well. But the major discussion at my house, Lisa, it was simple. I need garden. Do you put sour cream in your mashed potatoes? These are the kind of discussions this week that matter Joel Weber the big week into the biggest, most eventful week you could ever imagine. How much are we going to fight over the turkey to see whether we put sour cream on it and whether we discuss bitcoin over the table? I really do wonder. I mean, honestly, this is not a very
eventful week. Monday, Tuesday, Wednesday. Exactly. Was pretty good. But we are getting is a lot of year ahead reviews. And I find that interesting because they're coming out during the week. If take don't look at this. We'll revise it in March and you're
getting them. And there are some consensus trades that you're starting to feel even in the turmoil that we're seeing. Yeah, we're going to talk about that as well, including some disinflationary talk. Chef Patel will join us here to start us
off. Margi Patel joins us from Boston here in a moment. Let's very quickly go through some of the immediate headlines. I'm not surprised.
This is a cultural issue. Iger back in Disney, not is chairman. And I'm sorry, I've always said this entertainment is about creative. And what this was is a failure of creative. Iger comes back in to jumpstart Disney creative. What this is, is about Walt Disney Company facing its worst year of stock losses, potentially coming back to 1910. A lot of company. They had a lot of company. And yet they are uniquely in pain due to
perhaps the amount of money that they're hemorrhaging from Disney, plus trying to rationalize the billion plus dollars of losses that they did in there. How much do you really revive that, considering that Bob Iger kind of founded some of the online streaming movement stock two or three down to the 86 level, I believe then up to 90 and up nicely today has already talked a lot about this, are trying to effort some of the true experts on this. But again, Lisa, so to me, everything here is culture, Wall Street's culture, entertainment, the pixie dust of Hollywood has culture.
And this is just a cultural discussion. Got anger. And it's the culture also of activists getting more involved. Suddenly you have more activist investors that are going to be kind of pushing things around a little bit more. The other aspect of this is how much are
we going back to a pre pandemic norm for some of the entertainment companies, some of the tech companies that really built up in 2020 and 2021 when they were the only game in town. And I wonder that was some of the tech layoffs, right? Is unique with 75 percent of the staff cut. But is it right? I mean, we're going to start to see layoffs that start to seem pretty romantic. And I like the phrase so many of this week tech session I thought was pretty interesting.
You wonder if that expands out from that. We've got to talk about China yesterday afternoon late. I said to someone in the family, I said, this isn't normal. This is two 300 cases. Maybe I was in Beijing.
I can't remember as well. Boom. In the Chinese Monday, they begin to recalibrate. The first death from Covid in quite a while in base read sea level. The 87 year old man starting that off. And so you start to see curbs come back. But this really speaks to how much hope was baked in the market that perhaps China would move away from zero Covid, even though Teddy kept saying, no, we're not. No, we're not. And so here you are. You're seeing that a little bit in some
of the price action. But there is a feeling that China drove away eventually. And the current schedule to join us. Let's get right to the data here. Yes, it's a holiday week, but yes, we continue to watch equities, bonds, currencies, commodities futures with the way to them negative 21 Dow futures. Same kind of idea actually.
Dow Jones a little bit better on a percentage basis. Nasdaq down seven tenths of a percent and the VIX was a 24 level twenty three point ninety. I'm going to go right to it. We had a 15000 handle on bitcoin. It is fragile this morning, 16000 1 1 4 down fractionally. But 15000 handle is not 16000 reality on
bitcoin in the bond market. Lisa, help hope you hear the tans 3.0 83 percent to year. You know, I'm going to call a churn of non news. And yet there's that inversion still negative 71 basis. People expect the Federal Reserve to hack half take rates pretty substantially into weakness.
And that is going to lead to further craven version. I'm curious to see whether we get any Fed speak that really discusses that before. This is really important. I think it's a sleeping time bomb. West Texas Intermediate American Oil 79 17. First for American oil to migrate down into the low 70s would be a huge deal in this holiday week. It's amazing to see oil come down. Are you briefing today or because of the
holiday? Do we are we brief Francine Lacqua? I'm briefing, but briefly. So let's just go through it real quick. The Fed speak that we got today, we did get some San Francisco Fed President Mario Draghi speaks from 12:00 p.m. Eastern to 145 p.m. How much did she talk about what we've seen in terms of what a pivot means? And this is something that's important. People are talking about a. Pivot, meaning the Fed stopping other people saying, no, a pivot is when they actually move from a restrictive to a less restrictive stance, which isn't going to come right a very long time. We also get auctions today. So you have the auctions in a moment. I want to shut up.
Mary Daly, I think she is the most interesting Fed official was first order economic skill. And she came from a really tough background. This is not some person that grew up in the suburbs with a silver spoon in her mouth.
I think she's got a very unique perspective for Fed officials becoming hawkish as you see people in the lowest incomes, seeing the most pain. She really brings a unique perspective to this. We're also going to be getting earnings today, including from Zune video communications aftermarket. This is a chart of their stock over the past five years. Kind of shocking to see the round trip. We got as high as nearly five hundred seventy dollars on the shares. And currently they're trading at, you know, substantially less than that.
It's just sort of shocking to see how much of a round trip. Eighty one dollars, 64 cents an hour is to see whether they can deliver on that. And then today, this is what everyone's actually watching, which is the World Cup. And the games that we have today are
England versus Iran at 8 a.m., Senegal versus Netherlands at 11:00 AM and U.S. versus Wales at 2:00 p.m., Secretary of State Tony Blinken will be attending Secretary of State John. Looking to her 8:00 a.m., England.
Iran, a ISE. And I asked a godly. So I'm like you. I really don't focus on it. But after the 14th article in The Telegraph, in three hours, you know, you sort of skim the headlines. It's the minimum we can state.
Boy, do they take this seriously. I mean, it's England, Iran. But, you know, the Michael Barr going play in Germany today. We do, too. We'll be talking more about that later on because we're such experts in it right now.
Marty Patel will join us. And we start strong. This is an Lisa Abramowicz bramble. It's demanded that we start with Patel today and we do. Markey, thank you so much for joining
us. I was talking about you cooking up a storm in Boston this weekend with the distressed bird. I'm sure you'll make something of it. How distressed is the bond market? The bond market is in very good shape, particularly high yield. In fact, I would say if anything, there is actually a supply scarcity of good quality high yield paper to buy. So we've had yields, spreads widen out only 100 or 200 basis points more than the Treasury move.
So high yield bonds year to date have far outperformed Treasuries investment grade. It's really more lack of lack of supply for buyers by my. Defaults are under 2 percent. Michael Dirty and as we can note, is heated that the market is wrong and higher. He's looking for inflation in rates will fall meaningfully. That's an opportunity for Margi Patel
given a disinflation or price up, yield down. Where's the best place to play? In the in the bond market, I think that better quality, high yield is a very good place because if we have a real slowdown, if we have deflation, we may see defaults go from 2 percent to 4 or 5 percent, their historic average. So that says take a little bit of risk and say a double B name, get less yield, but you'll be able to keep it and not lose your principal. There are higher defaults. How much you looking at stocks underperforming next year? We've got some outlooks from a number of Wall Street banks and pretty much they are unanimous that next year is not going to be great for U.S. equities. Do you agree?
You know, I really don't. I think it's really at this point up in the air, a lot depends on what the Fed does. If the pad slows down their very rapid rate of increase, will that allow us to avoid a recession? I think on a relative basis, we'll still be better off than just about any other country in the world.
And because people are so wary of this risk that made that sense to me, maybe there's a lot of money on the sidelines that would like to come in. If it looks as if the years clearing and the Fed is stabilizing or would miss a recession, can you do it at the headline index level or do you have to be perhaps a little bit more sector specific based on what's happening in tech? Well, I think you have to look at sectors. I think that technology has had a lot of problems. That's one of the big underperformers this year. But if you go back, say, to 2000, when the market crashed, I tech was much, much more overvalued. The crash was much bigger. The recovery took much longer. This time, a lot of tech names.
Some of the semi names are very reasonably priced for their long term growth. Still volatile, but the PS are down closer to what they expected growth rate will be. So we think a lot of parts of the tech market is pretty attractive here. Or do you have been fearless about looking at equities for dividend growth as an income trade? Is that true now? I think so because you've had such a big correction equities. You really put the dividend yield, the cash flow yield where it is actually competitive with investment grade bonds. So if we have any kind of growth in the
economy next year, it says to me equities will perform. I think 2003 will probably be a rather muted total return year, but I still think equities will do better than bonds markets. Thank you so much for the offspring global investment. It's just wonderful. Good luck with the distressed bird, as is. Well, Lisa John from Coventry e-mails in
front of the TV set just before England, two hours away. England. Johnson's time. You went right over the auction's What the hell are you doing? The auction's today. There are two options. How dare you. I mean, I know. This is my foremost import, John Howard's Saturday.
Well, we'd basically be blowing up the show at the auction Monday ahead of Thanksgiving, 1 p.m. We get just so wildly dollars of their two week bills and 43 barely knows a five year notes. The five year notes are most interesting to me. How do we deal with a longer term inflation? That has been the biggest distinction that I've seen over the past couple of weeks. Suddenly, people are starting to talk about disinflation and outright deflation and a greater number of different sectors. Do you get that feel in some of the
options as the option really well? Do people flood in because this is an area of yield? And in this week, as Lisa mentions, we begin to look forward to 2023. We'll keep you abreast of the different Wall Street global. Wall Street reports on that. I should say futures at negative 21. Oil I'm watching 79 70. West Texas Intermediate Bitcoins, 16000.
Keeping you up to date with news from around the world with the first word. I'm Lisa Matteo. Well, Chinese stocks and the yuan retreated as a string of reported Covid deaths and tighter restrictions in some districts gave investors a rude reminder that the path to reopening will be rough. A city near Beijing that was rumored to
be a test case for restrictions across China has asked residents to stay at home for five days, a potential sign officials are reverting to tighter Covid zero curbs. Meanwhile, the country's first cold winter related death in almost six months has sparked concern that Beijing could see a return of restrictions. The U.S. and Chinese defense chiefs are likely to meet for their first talks since Beijing suspended dialogue with Washington over House Speaker Nancy Pelosi's August visit to Taiwan. A Pentagon spokesman says U.S. Defense Secretary Lloyd Austin would welcome a meeting with Chinese Defense Minister Wang Feng Gay. Now it's the latest sign that ties
between the two nations are stabilizing. The cop talks in Egypt have ended with an agreement to help developing nations face the devastation of climate change, although that deal is for a loss and damage fund. It paid for by rich countries is seen as a breakthrough. But negotiators failed to agree further cuts in CO2 emissions.
Equity investors hoping for a better year in 2023 will be disappointed, according to strategists at Goldman Sachs Group, who say the bear market phase is not over yet. Strategists, including Peter Oppenheimer and Sharon Bell, predict markets will reach a final trough next year before a strong rebound. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than 20 700 journalists and analysts in more than 120 countries. I'm Lisa Matteo.
This is Bloomberg. We in the United States probably need to be careful about our evangelizing influence. I don't think it's really for us to tell China how they should organize their entire society.
I think we're going to need to be very careful with respect to our diplomacy. Lawrence Summers are committed to Wall Street. We can we thank the former secretary of treasury for his comments on an often basis here on his economics and also, of course, the way economics folds into the Atlantic and Pacific society. Lisa Abramowicz Tom Keene. John Farrow is off today looking towards England.
Iran will do that in an hour and 45 minutes. We'll keep you abreast of that. Was surveillance World Cup coverage as well. It has not been a surprise, but yet here it is in China. There is again rising Covid.
The joins us now. Chief Asia economic correspondent here and under you and I were talking about the symbolism of a hospital in Hong Kong from the 1930s, the Queen Mary hospital, which is maybe where those tea leaves are discovered in your Hong Kong. Is Hong Kong like the rest of China with Covid, or are there certain zones where things are worse? There are some parallels, Tom. Hong Kong does have rising cases at the moment. People are watching what's going on with the hospitals and there are warnings that the hospitals are filling up again. Now, if you extrapolate to what's going on in in mainland China.
Well, there we know that cases are surging. We know that we've had the first reports of fatalities in six months. We know that we're heading into winter in China. And, of course, all the warnings survived the past year or so with since the arrival of Omicron, which has tested Covid 0. Has been all about. It's been all about consciousness.
Hospital network withstand an outbreak, especially China's regional and rural hospital at Mark Crumpton IBEX produce say we'll be put under a lot of pressure. And of course, is the vaccination rate, especially among the elderly, at a kind of level that you need to protect, well, your populace. So in our reporting this morning, folks, and this is the depth of the Chinese reporting of Bloomberg.
We have age 80 vaccination with booster only at a stunning little low, 40 percent. That equates to, I'm going to say 90 percent in America. Is this the moment and occur in where Beijing gets on a first name basis with Pfizer in Modena? Well, you know, China have not embrace the Western vaccines.
They certainly have been pushing their own sign of CAC vaccine. There's never been a good explainer, though, I think from the outside looking as to why the vaccination rate among the elderly hasn't been at the level that it could and should be. Tom, there is a view that China has wasted the kind of good Covid year when it was keeping the disease out and not getting the population inoculated. By the way, similar story in Hong Kong draw parallels to the elderly population here.
We're not protected. When it broke out, then we had a major crisis on our hands. So there hasn't yet been a satisfying explanation, I think, on China's vaccination rate. But there is a lot of focus on aid. Do they start to ramp it up among the
elderly and then be to your point, where do they go with the fact that Western vaccines and therapeutics, do they eventually embrace them through daylight and abuse in the populace? These are core metrics that, of course, I suppose that people are looking at for I think and this doesn't sound wonderful. It's not as terrible as it has sounded. And yet when you take a look at the Wall Street analysts, expectations for 2023, almost universally, they are all overweight China. They all expect some sort of recovery in the stocks and bonds of the second biggest economy in the world is what you're seeing on the ground consistent with that, that we've seen the worst. And now it's just going to be about recovery and how quickly the station can do that. So two things are going on. We had that pivot, Lisa, on real estate,
as you well know. Couple of weeks ago, I need the basically the message from the government was continue to support the real estate sector, the banks and everyone involved. That has lifted expectations for China's economy. Economists are saying that's a game changer.
And on the other side of the Covid side of things, we had that pivot. We can argue what the extent of it. But we had DAX signaling from Beijing that we are on a path to Covid 0. Eventually, we have had messaging even today in the state press saying, you know, let's not have the broad base lockdowns or mass testing we've had. Let's be more targeted and smarter in
containing Covid. So that's what's buoying the optimism for China, that maybe there is a way out. But let's not forget, we are going to win now. It's going to be a huge test of how they do navigate Covid, especially their trajectory to move away from Covid zero. And of course, on the other side of
things, we have the real estate story has a long way to go. You know, both Covid has a long way to go in terms of lifting all restrictions on the real estate story is far from ending its slump as well. So there's a basis for optimism that maybe it's hit the bottom, but that doesn't mean the full recoveries is ISE in any way under way just yet.
How does the Tony Blinken trip to China really shape this narrative as well heading into next year? It's more about good music, mood, mood music, Lisa, again, there's a view that maybe the U.S. and China put things put things on hold for a moment of cold time ISE on those tensions. Again, nobody's talking about any of these structural underlying issues being resolved or when you have the governments, the officials talking to each other on climate change or on security or on economic matters. The thinking is that's obviously that's already bodes well compared to where they were before the G 20 meeting between the two leaders. So I would say better mood music, but it
doesn't solve any of the underlying problems. And very quickly here, are you sliding like a 12 hour workweek here in football? Mad Hong Kong? I was at the Concorde Hotel there once and there were four games on at the same time. I mean, does Hong Kong stop for the World Cup? Hong Kong is a big football city, Tom. Absolutely is the difficulty this time around is the time zones or the time of the games over in Qatar aren't great for us.
So I don't think anyone expects the bars of lunch hour long by phone to be as packed as your previous World Cup, as previous World Cups. But there will always be the diehard fans who will be out and about watching it for sure. See how he is. Is why you see it. But, Tom, you knew the answer to that. Of course. Well, you know, we did it. We did our World Cup chat. A lot of undercurrent.
Thank you so much of writing color and seriously. No one talks to team surveillance, doesn't like and occurred in his late evening in Hong Kong. You mentioned earlier the view to 2023 and Danny Dwyer and Michael Welch, Canaccord Genuity. It was a missile on his. It's for Dwyer. I mean, Dwyer is an optimistic guy. I mean, he's you know, this is not an
optimistic US will be Wales. And this is not an optimistic note when bad news becomes bad news. And look at that. Don't buy the pivot. Yeah.
If a recession is coming, don't buy the pivot. Basically, this is something that John's talked about, which is if the Fed does not cut rates into a recession, if they hold rates where they are at any, the economic trajectory is slowing. That is restrictive, even if they're not hiking further. And Bank of America put this out. Well, they said to us, a pivot isn't stopping with rate hikes.
It is cutting. And that is not going to be necessarily on the table for a while. It's going to be interesting to see. But certainly for Mr. Dwyer, who's made a career of linking equity drops to recession, this is a unique note.
He says here's a recession and he has trouble going long. So Morgan Stanley's Mike Wilson over the weekend missed something out today. He basically was defending some of the hate mail that he was getting on his projection that the S&P could fall to 3000 before going back to where it is right now. It's about a 24 percent decline from where we are now. And he basically said that people are pushing back saying you're crazy. And he's saying, look, we have to have
some earnings pain if you're going to see the recession that so many people are expecting. We'll see. We've got a wonderful set of guests coming up. I was actually thinking this week and I hope we get Dr. Weinberg and Carl Weinberg is going to join us soon. Futures are negative 21. Dow futures negative 79. The VIX elevated a bit of tension, twenty three point nine five.
Stay with us. Bloomberg Surveillance. Michael Bloomberg Shery Ahn. Good morning, everyone. Lisa Abramowicz Tom Keene John Farrell on assignment this morning at 8 o'clock, scheduled in Doha, England. Around that is in. That's his assignment. You know, it's like a World Cup
assignment that nobody's, you know. I mean, can you blame me? The guy's encyclopedic on this. I got an assignment to wait for him to get stuck on assignment. I mean, the finals, December 18th. So we got a long way to go. There's like 14 brackets. And, you know, did you watch yesterday? I watch the highlights.
And I felt all bad for the CAC team, honestly, because. Yeah, that their nation had built up this entire ecosystem around it. And then they just froze. They show up in Ecuador. Absolutely. Nobody's left the stadium. And so, you know, you wonder whether they can bring it back. Re mandated games, right. Televisions clicking off, radio stations
changing worldwide, as you would know. Let's move on. Futures negative 21. And of course, we're watching. Disney will have some coverage of Mr Iger back to Disney as well. We just spoke to our wonderful and occurring in Hong Kong about the moment again for China and Covid right now with the data negative 21 rates, they're giving me no help today. Oil a little bit like seventy nine sixty
eight and wants Texas Intermediate and some dollar strength. Finally, we catch up on a narrow topic with Carl Weinberg. He's chief economist, managing director at High Frequency Economics. Dr Weinberg, I have noticed it's not my chart of the year, but it well could be. The Bloomberg Financial Conditions Index compare between the United States and the EU has never been wider. Europe on a financial conditions basic
basis is flat on its back. What does that mean for the ECB in terms of their efforts to be responsible and to do quantitative tightening? Hey, good morning, Tom. Thank you for finding something on Bloomberg that even I couldn't find in terms of the Financial Conditions Index. What we're looking at, where we're highlighting to readers of High Frequency Economics this morning is a huge change in what you just described.
You see these monetary stance is going to take a huge step tighter on Wednesday morning. Specifically, they have raised the rates on their repos. Banks have the opportunity to pay them back. They've signaled two hundred and ninety six point two billion euros worth of long tripods to be paid back on on Wednesday morning. That's going to increase the stock of
bonds available to the market by two hundred ninety six point two billion euros in one day. And that should be a massive step toward reducing real money supply. Getting rid of the excess cash balances that are out there and more importantly, increasing the supply of bonds and raising long term yields. If they do this and I'm going to use a phrase from John Claude Tres Shea, he would talk to me about how economics diffuses differently. Sir, you're up. I get that if we do to in America what it means for Montana and Mississippi. How does it diffuse across these nations? It is a slower process in Europe to get the impact of this out into the market.
When the Fed undertakes Kuki, it sells bonds to the market. So people immediately exchange liquid cash for less liquid or illiquid bonds, and that immediately affects their behavior. In Europe, the bonds are being returned to the banks. They were held as collateral against repo agreements.
So the banks that it will take their time or whatever time they take to sell those bonds back to the market. Because why on earth would a bond want to meet with a bank, want to be holding a bond when the price of that bond is sure to fall? All right. They're better off in cash. So I think those bonds will get to the
market, but it will take a little bit longer than the key to impact those in the United States. Some says this sounds very narrow, but the implications are as broad as you can imagine. There is a feeling that when you head into a downturn, you invest in duration. You head into long term government bonds of developed nations.
Certainly what's happening in the United States. Are you saying over in Europe and perhaps in the U.S., that is not the correct trade that you're going to see yields on the longer and on longer term treasuries and gilts and boons go up, not down into a downturn? Well, Lisa, if we're not at the top of the Fed tightening cycle and we're barely approaching the top of the inflation cycle, bond yields are going to go up. With or without Kutty, it's just a
question of how far. So the Q T makes the bonds look less desirable. It also raises the rate on long term lending. And that in turn depresses the economy because it discourages borrowing to invest. It discourages we've already seen it in the housing market, in mortgages. So yeah, long term interest rates are probably going to go up from here.
That doesn't mean the yield curve can't be inverted and that it can't continue to be inverted. And it certainly doesn't mean anything. We're still going to get a recession at some point, although maybe not right away, but we are going to see higher long term bond yields. Okay. For how long? And I ask this because a lot of people are saying that the Fed does want to bring inflation under control, so does the ECB, and they're going to inflict quite a bit of pain in order to get that. Are you saying that they don't have the conviction to do that? Or just that all of the financial engineering over the past couple of decades is coming home to roost and that that long and will continue to go up for a longer period of time with higher real yields? Well, Lisa, I think that this whole process has a finite end.
You know, we saw a massive surge in the supply of money to the economy, and we've had too much money chasing too few goods. And that's giving us the rise in prices that we perceived as inflation. But I don't believe that's an infinite process.
I believe the adjustment of real money is being undertaken both by central banks and their Kutty, combined with rising prices eroding the value of the nominal money supply and bringing down real money. In short. All right. It's a process that has a finite end point. And by our calculations at High Frequency Economics, we have some great charts on this for our readers. We expect that most central banks will have gotten money supply back to where it ought to be for price stability within the next year. And that a year from that, we will be
talking about the recession and hardly tying it all elation. We have to get there first and we're not quite there yet. Carl, your read on stochastic nature of inflation.
You look at the two bouts after 1947 and on and on and on the pointed this of an up we go high inflation, we turn around and disinflation rapidly. Is that your scenario? I don't think we have to see disinflation. All right. We've had again, you look at the chart of money supply in the United States, and I hate to sound like a monetarist because I'm not one.
But you got to look at this chart, Tom, and you see this big bubble of money being printed and there's just too much money out there. So we have to write that. And a one time increase in money should lead to a one time increase in prices. And it feels like inflation when we're doing it. And that's where we are right now. Right. Just once is. But it doesn't go on forever. All right.
And we don't have to see prices fall. They just said stabilize at a higher level. Let me go. Milton Friedman, David, later on you as we go monetarist, where does that money go? If we have a balloon of money. Well, first of all, the Fed takes a lot of it back with its quantitative tightening. And that's what we're starting to see now. And that's where we're going to see in
Europe by Wednesday morning. You see a big step toward reducing the money supply in Europe and getting it to where it should be within a year. And the other place, the goal is, is that rising prices make the real money stock the amount of goods and services that the money can buy. All right. Get become less so, therefore. All right. We then adjust the amount of money we have to the amount of goods and services we're producing.
So the money doesn't disappear, but real money gets eroded by the rising prices. And the central banks do the right thing, which is what they're doing, which is start to take it out with quantitative tightening. This right sizing up monetary policy, what does that do in terms of the depth of the recession that you're predicting? Well, the recession itself, there are a number of factors behind the recession. Some of them were just cyclical. All right. Some of them the biggest component of it, though, is that I believe that wages have not kept up with prices.
That, by the way, is your clue that the inflation is not going to be self-sustaining. And we have real incomes coming down. So we have probably a pretty powerful recession coming. We also had a pretty powerful boost out of this coming out of this wonky recession that we just had. I mean, reread Jay Powell speech at Jackson Hole, not last summer, but the summer before. He says this is the darndest thing I've ever seen.
We had a recession and incomes went up at the same time. How could that be right? We've got a lot of the excesses that we have to purge. So I think we have a sizable correction in the economy to come. I can't put a number on it right now.
Right. I think it's going to be a pretty substantial one. It's not going to be a little long. Karl, what's your theme for your to 2023 outlook? Give us a window into that. I think we've got a more for our concerns away from inflation. Prices will stabilize and then we'll be thinking more about the recession. So it's a pivot in your language. All right. A morphing of focus away from inflation
as prices stabilize. Kahlenberg, thank you so much. High Frequency Economics, just a terrific brief and leaving early. So we've got to have Dr. Weinberg back because how would you even get to one of his 40s, which is an emerging market, fragilities that are out there Friday? Look for it, folks.
BRANDO I'll be off Friday after surviving my cooking. BRANDO with Damien Sasser What would an inspired pairing? Well, I love them with Damien because you guys all ditched me to go enjoy your second day of the Thanksgiving holiday. But Damien's going to be the trooper that comes in here and we have a great time.
We're going to talk to all sorts of strategists and focus on fixed income and talk about what's going on with the shopping. You didn't do shopping. No, no. It's England U.S., I think, Friday. Kip?
No, there's a big, big game Friday. John and I've already picked out a bar. He says I have to go below 59 St.. You know, that's it. We'll be good luck for. Have fun. And we hear even more people clicking off. I do want to just point out one thing Carl Weinberg was talking about the year ahead. And what do you get if you pull out all of this extra money that central banks pulled every month? Gloom there. So Morgan Stanley put out their outlook
and talked about where they disagreed the most and where they had the most heated. Disagree US had to do is households one to one. And this to me was fascinating that they really had a controversial moment where they think that there is going to be a massive decline in the number of sales, but there isn't going to be a huge decline in prices. This is one of the big distinguishing
features. People think that there isn't gonna be this massive housing rout, even though you've got 7 percent mortgage rates. And to me, this is one of the biggest question marks, because the first area that really feels how much we've jacked up rates and what the consequence. I strongly agree with this. First of all, in our prism here, within three zip codes of New York City, we don't know what we're talking about. Let's start with that. But the bottom line is they're dead on
in that housing is a huge part of the economy, huge part of inflation or we are. And all that is hugely behavioral. To me, it's it's it's it's underplayed. It's not just about statistics and cold math. And just like you say, people are going to see an X percent decline in their house and they're going to go, let's sit. Well, where else can they move? Right. With borrowing costs are where they are
there. Like there's going to be no inventory. So what you're seeing now to some degree, shout out to Stephen Roach, who invented modern Morgan Stanley economics, which has always been visibly fractious. And we think that is a good powerful thing is I agree. BREMMER We haven't agreed since 2017, I
think. Stay with us. This is Bloomberg Surveillance. Keeping you up to date with news from around the world with the first word. I'm Lisa Matteo. In a newspaper interview, Germany's defense minister says the country is offering Patriot missile defense systems to Poland. Last week, a strike killed two people
and a Polish village near the Ukrainian border. Germany also intends to extend a deployment of hatred batteries in Slovakia through 2023. The UN's atomic agency says powerful blast shook the area of Ukraine's upper ritzy, a nuclear power plant over the weekend. Former Treasury Secretary Lawrence Summers warned U.S. policymakers to focus on building the country's own economic strengths in its contest with China rather than on attacking its adversary. Summers tells Bloomberg the U.S. should instead concentrate on its own innovation, infrastructure, education and challenges such as opioid deaths. Seven national football teams, including
England, will not wear a rainbow armband showing solidarity with LGBTQ rights. Bowing to pressure from FIFA because players might receive a yellow card for the show of support, Qatar is under intense scrutiny leading up to the World Cup over the treatment of migrant workers, as well as concerns about human rights and its criminalization of homosexuality. And it wasn't the star the hosts were hoping for on the pitch, beaten two to nothing by Ecuador in the opening match. Today, the U.S. takes on whales. An American musician yay has returned to Twitter after a two week hiatus from the social network.
A new owner, Elon Musk, welcome them back on the platform. His account had been temporarily suspended and restored at the end of October, which most said was not his decision. Days earlier, suspension had been due to an anti-Semitic tweet. Global news 24 hours a day on air and on Bloomberg Quicktake, powered by more than twenty seven hundred journalists and analysts and more than 120 countries. I'm Lisa Mateo. This is Bloomberg. The single most damaging factor for the world economy is the war.
And if we want to return to growth, the sooner the war is, the better. Because Taylor Riggs gave the International Monetary Fund on her war again from Eastern Europe. She viscerally understands the terrain and Lisa Abramowitz, the terrain there. This weekend was finally the feeling of
winter in some of the cities with destroyed infrastructure. The Ukrainians are simply pulling out people because they cannot live. And that nascent winter cold and a real attack right now on the electric system, on electric grid by Russia, on Ukraine. How much is this really causing an
escalation? It's really creating a bit of discomfort and even more discomfort around the world. Very good. Right now, we're going to stop the show. And we made a decision here, a lease 15 years ago to say, yes, we do economics, finance and investment. But far more we do international relations. Not knowing the world would be turned upside down, as we have seen in the recent decades, providing leadership worldwide. And that has been Richard Haass. He's president of the Council on Foreign Relations.
Full disclosure, I'm a member wanted pay my dues. I think I'm behind on my dues, Richard. Well, we'll give you another time. He is a bitcoin payment was bid quite worked out. Richard Haass is retiring, pulling away from truly his Council on Foreign Relations. All right. Richard Haass, thank you so much for joining us. So much to talk about it today. Where was the Council on Foreign
Relations go to lead as fractious international diplomacy? Well, Tom, first of all, I'm not retiring from anything, I'm departing the council after 20 years, but I'm going to stay active in the public conversation both about this country's role in the world as well as about the future of American democracy. But I think it's healthy for institutions despite what's going on, right isn't. I think it's kind of healthy for institutions every now and then to have a change in our leadership. I think for the council, it's simply to continue to be a resource on a wide range of challenges, whether it's the revival of geopolitics or global issues. We are we're just finishing up a cop 27 meeting in Sharm el Sheikh and quite honestly. All right.
It's almost a complete and utter, utter failure. And I also think increasingly we need to look at the relationship between America internally and America externally and whether we're ever gonna be positioned to again lead the world, because this world is not going to organize itself to meet the challenges it faces without an involved and effective United States. So I think the inbox in this field is as follows I ever been. I agree that strongly. And folks, a brief here, 240 pages is
Richard Haass. The Bill of obligations is he? And we go in search of the will of America to move forward. Richard Haass, the new administration, the new Congress, the new presidency, two years out, do they have the will to find their bill of obligations? I don't see a lot of the time, I'll be honest.
Know, I don't think we're off to a great start. The new Republican House of Representatives seems much more interested in politics than policy and investigations than legislation. I think for the next two years, it's going to be extraordinarily difficult for the Biden administration to get legislation passed really about anything. I think you're going to see, therefore, an emphasis on foreign policy where presidents traditionally have more discretion than they do on things domestic. And probably a greater emphasis on on regulation, on executive action.
Again, to essentially find ways to do things without requiring Congress to join in this fractious global order. How confident are you that the U.S. remain close to Europe, at least as close to Europe as they have traditionally based on some of the recent fissures, not only with respect to exactly how to deal with the energy crisis, but also with tech investments and some of the the the the bills that Congress has passed so far that really focus in the U.S.. Good question. So I think it's a mixed record. On one hand, if this administration, the Biden administration stands for anything and it's a lot it's an alliance first foreign policy. And I think the entire management of the Ukraine crisis, the Russian crisis has been ISE been pretty good.
You also see a growth in trans-Atlantic trade, whether it's because of energy or a deep emphasis on trading with adversaries, a real emphasis on trading what with with friends, where I'm worried about over the long term is not so much Russia as it is China. And I think there could be a growing split between what you might call American economic pressure on China, almost economic warfare, and Europe led by Germany looking to China in many ways to compensate for the loss of economic ties with Russia. And if there were to ever be a crisis over Taiwan, this divergence across the Atlantic one makes a crisis more likely because China may not fear sanctions or if there were a crisis in the United States, wanted to introduce sanctions, I could imagine a big transatlantic split. This is really important, especially as German Chancellor Olof Schulz just went to China with a bunch of executives of big industrial companies. How much do you give credence then to the softening in tone that we've heard at least recently with the U.S.
and China and Tony Blinken Blinken heading over there early next year? Look, I think it's good. I'm an old fashioned diplomat, so I actually happen to believe in diplomacy. I think that's progress. I thought the meeting in Bali was a useful exchange. I think it's useful to have follow up, but let's not kid ourselves. These countries are in very different pages.
The question is whether they can set up some rules of the road about how to limit their differences over Taiwan. So it doesn't lead to conflict. But I don't see any sign, for example, that China is lending a hand to deal with North Korea, which is busy building up nuclear weapons and shooting off missiles. I don't see that China is helping with Iran. We can go around the world. So geopolitically, the two countries are not on the same page. China is still not helping with with climate much. So again, to me, the real question with the aid states and China with these talks is whether they can avoid negatives more than achieve positives.
Richard Haass, I grew up with part of the House being a middle 20th century isolationist, what was called a Chicago Tribune Midwest isolationism, something I'm sure you saw west of Oberlin, Ohio. And when I look at where we are today, Richard Haass, we have a new isolationism. It's always there. But this time, it's different color, the character of America's new isolationism. You're right, we're seeing it time and it doesn't respect party lines. We're seeing it in both the Republican Party and the Democratic Party. You see in the Republican Party a kind
of flirtation with Russia. This talk about conditioning or limiting aid to Ukraine on the progressive side of the Democratic Party again, and impatience over money spent for foreign policy or national security abroad wanting to see more at home. What's missing on both sides of the aisle is an appreciation of two things. One is that money spent on foreign policy is good for us here at home. We are not going to do well in a world that unravels. Here's my favorite word in a world in
disarray. Secondly, what ails us at home for the most part is not a lack of resources being spent. You look at how much we're spending domestically.
That's not the problem. It's how we spend money. Is the issue much more than how how much we spend. Plus, increasingly, as you know better than anybody, what's crowding out a lot of useful forms of domestic spending is not national security.
It's servicing our debt. And that's something that people on the left and the right wanted to free up money to devote to domestic causes. They could focus very much on the size of America's debt. Richard ISE, thank you so much. The council and his Council on Foreign Relations, the new book, The Bill of Obligations, is the will out there to move forward into the next decade. We're going to move forward to a day to check future negative 20 VIX back above 24.
Monday, Thanksgiving week, it's a churn. It's an elevation. Stay with us. This is Bloomberg. This economy is still the most resilient economy in the world. The rally could continue. I do think it is a bear market rally. I mean, you know, it could go to the end of the year.
There are huge opportunities underneath the surface. There's still going to be facing an awful lot of volatility in 2023. Really, what we're dealing here is potentially with an earnings decline that is not yet priced into the market for 2023. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. Good morning, everyone. Jonathan Ferro. Lisa Abramowicz.
Tom Keene on a Monday on radio. On television in one hour. England, Iran. John Farrow is not in today. I'm shocked. Let's wonder why. I wonder why. Assignments. Yeah. Not only that, but you know, he was putting up his tree ahead of Thanksgiving.
Yeah, well, guess what? So did Bloomberg. So he got the tree and you've got the World Cup and he's off. Yeah. Oh, you know, he is killing it. You're on Thanksgiving week. We hope John enjoys his World Cup. We do actually do miss him because of his really true knowledge of all that's going on here. COTA record all you saw yesterday, I saw it. It was pretty cool.
Yeah, it was cool, though. Cutter is sort of sad for them because this is their real tour de force. I mean, this is when their country really put all the money into it and then they just couldn't really make it.
You know, but that's my my take is there it is. And the people committed this like Mr. Farah with encyclopedic knowledge. They're going to love it. We have to sort of follow along with respect. And it's an America the next time
around. You didn't say it was a massive week ahead. No, it's not a massive week ahead. It's vague. You know, Thanksgiving week, folks, we talked to Margi Patel about her distress bird. She's cooking futures negative 22. You know, I look at it and I think it's
such an odd week. It's good to have the news for the morning. Let's go through the two items right now. Iger back in Disney. Were you surprised? I am not surprised, given the fact that the shares have absolutely plummeted, that Disney plus is losing more than a billion dollars a year. You're seeing this real push from activists. Do something, bring back somebody,
right? Really January, a culture that was successful. But this was someone who really pioneered a lot of the streaming and really tried to write a lot of streaming. What did they could do, offer file offload at ESPN? Is that what they're thinking you might take on? This is the Sunset Tower Hotel in Hollywood. And they're wonderful poolside
restaurant where people like Mr. Iger hold court. This is about creative people. Mr. Cheap CAC was not a creative person. Even he admitted that.
And with all that's going on, particularly, as Paul Sweeney says, in the streaming death we're seeing right now, get Iger back creative before they find a new creative person. Dani Burger. This is a specific industry. And yet wholesale, Disney is not the only one that's facing some of the worst losses in their history and they're down the most now going back to the 1970s are poised for the worst annual loss. How much you going to see more of this kind of pushing for activism for for chair of her changes in the C suite? Because that's really also its underpinning this. You have Nelson Peltz coming in there trying to push for change. You've got other activist investors saying you're not working, you need to prioritize us and it's going to get rougher ahead. How much is this going to end up being?
What's going to happen at a number of different companies going forward? Well, it's going to be interesting to see on China. Let's get right to an undercurrent really I thought was informative there in the last hour. This is for real. It's a new lock down. Well, and this is because you're actually seeing cases spread. This is sort of the carrot and stick approach of reopening in China. They don't have the collective immunity.
And you asked the good question to end a current. About what? About Pfizer? What about Montana? What are they going to start importing more effective vaccines? And we don't know. No, I mean, it's just we don't know. There's it's all there is to it. Let's do this. We've got such a wonderful guest here. Let's get to the data right away and then dash your brief futures, negative 22 where they've been on morning bonds. Give us no information this morning.
There is some economic data this week. And of course, we stagger to that critical inflation report that we see in December and the jobs report more important now than maybe two weeks ago. Two cents spread gives me next to nothing negative, 70 basis points. I think oil's import, Lisa, to have oil crack would be really important. We're not there yet.
West Texas just under in dollars a barrel. Yeah, but this is on potential weakness, not only with respect to China and potential lockdowns, but also just globally as these RTS years rise. By the way, it's countdown to meeting minutes on Wednesday. The FBI let him go in May. They put him out on Wednesday to bury
him in the Thanksgiving exit. I do want to point out I can't say that I'm so sorry, but someone who was a theme to be the takeover of the Bank of Japan made clear he wasn't thrilled about yield curve control and yen at 1 percent today. Two big figures, 142 rounded up is a weaker yen. And I think that's important. Well, that's on the radar, but it's important.
We'll keep track of that throughout the day. So what I'm looking at for you today is Fed speak. We have one San Francisco Fed President Mary Daly is going to be speaking for almost two hours starting at 12 p.m. Eastern.
How much she got to talk about the auctions because we're all focused on the five year auction at 1 p.m.. Today, but we also want to hear from her about how long she sees the Fed keeping rates potentially above 5 percent when she starts to feel that perhaps they need to ease or pivot into a less restrictive stance today earnings include zoom video communications after market. We were talking about Disney. How much do you start to see a complete rethink of companies that were completely bid up during the pandemic? Completely beat up Disney with Zoom. I don't think you can do that. There is only the similarity that they both ballooned in areas where suddenly people are rethinking the whole era of work versus home, of entertainment versus external experiences. So this is sort of a question mark. What do you do?
Facing the new reality and today, this is all that people really care about. The World Cup games include England versus Iran and about an hour time, Senegal vs. Netherlands at 11am U.S. versus Wales at 2:00 p.m. I'm going to anybody.
I'm looking forward to that. And I think the USA will say I am as well. And I promise you that when I'm on the order of not talking about, but rather than us to try to pretend they. David Blanchflower on tomorrow. I'm sure he'll be watching.
I'm sure. I'm sure everyone's watching. Said it's not going to be really looking for my insights in it, but nonetheless, it is going to be compelling to see some of the diplomatic kind of aspects. Gabi, thank you so much for watching. And the Hollywood and the early Hollywood morning, Gabi makes very clear that Mr. Iger wouldn't be seen in the restaurant of the Sunset Tower Hotel. He would be in the Tower Bar. That's a surveillance camera.
Thanks, Gabi, for pointing that out this morning right now. And if you're taking notes on the equity market, get out the pad. Get out the paper, because Katie Kaminski, chief research strategist at Alpha Simplex, is a turtle. She is a turtle trader from way back, which is trend matters. Katie, everybody would kill for your performance this year, still up 40 percent. What is the trend forward or are trends breaking now? Yeah, Tom, it's been a phenomenal year for trend in a year where things are very uncertain. What we have noticed, though, is that
we're going through an inflection point right now like we saw earlier this summer. We're starting to see that shorter term signals and longer term signals are kind of at odds. And so I think we just, like the rest of the market, are looking for a pivot to the next big trend. So far, we're looking at a day like today, the dollar is coming back a little bit. That may not be over. And of course, short bond signals are still there in the data. Well, Katie, can you elaborate on that?
This sort of pivot point that you see in terms of short term and longer term signals? What is that pivoting us to? Right. We've come from an era where bonds have been all over the place. But we saw a rally recently. We saw stocks being rally both stocks and bonds rallying. What's the new pivot? What's that new reality? Well, the thing is, we've really the challenge has been that we've had a mixed signal. So there's no clear signal net at this point. And that's why I say we're definitely at an inflection point. But if I had to look a little closer at
what has changed the most, optimism has come into signals at a level that is consistent with what we've seen recently. So we've seen more positive signals in equities, especially around the CPI print. You're also seeing a little bit more reversion out of the dollar trade, but that's still there.
So that's why it's kind of said it's a balance between what do we see shorter term and longer term. And the longer term signals are still definitely saying that there's some things to worry about ahead, especially the curve, the yield curve being inverted recently. Katie, you've nailed it with bonds in particular. You wear short bonds, which has been the widow maker for so many years.
And this was one of the areas where you absolutely knocked it out of the park with nearly 40 percent returns so far this year. How much do you buy this conviction that we're feeling in Wall Street that that's going to be the biggest area of outperformance by 10 year by 30 year treasuries and you're going to just do really well next year. So we did some research this year on bonds. It was called the short of shorting bonds. And one of the things that we need to think about, if we're moving into a much more focused on rising rates and higher rates environment, is that bonds are not going to behave under inflationary pressures like they did in the past. And this year was just the first data point to show us that that's the case.
And I think what has been the most fascinating to me is how we avoid thinking about long bias and so many of us are so dependent on buying long bonds. We forgot what it's like to actually think about how do you deal with actually shorting bonds and how do you deal with bonds and valuation versus inflation. And I think that is going to be the key question for all investors over the next few years. What's great about trend following folks
and this is rumored, folks, Liverpool may be up for sale. John Henry, owner of the Red Sox Arch Turtle Trader. Rumor has it Henry may sell Liverpool to Kaminsky. We'll have to see on that is